CHICAGO Alcoa Inc. is
cutting costs to cope with steep aluminum price declines even
as the company predicts that downstream demand will surge in
Aluminum demand has grown by
about 8 percent per year in recent years and is expected double
over the next century, implying growth of roughly 6.5 percent
per year, Alcoa Inc. chairman and chief executive officer Klaus
Kleinfeld said at a recent shareholders meeting.
"The aluminum market is not a
bad market," at least not when it comes to the "physical side"
and end markets, according to Kleinfeld. "There is a different
story on the pricing side," he conceded.
As aluminum prices remain low,
the company continues to move away from commodity-grade
material where possible and focus on value-added products,
Kleinfeld said. Only 25 percent of Alcoas profits came
from value-added products in 2003, a number that had jumped to
71 percent by 2012, he said. "We have really changed the
portfolio pretty drastically," Kleinfeld said.
Aerospace accounted for almost
one-third of the $13.2 billion in value-added revenue
Pittsburgh-based Alcoa reported in 2012, Kleinfeld said. The
sector is forecast to see an 11.6-percent compound annual
growth rate between 2012 and 2015 thanks in part to eight-year
backlogs at Chicago-based Boeing Co. and Toulouse, France-based
Airbus SAS, he said. That demand will last "even if the economy
wobbles a little bit," and Alcoa is well-positioned when it
comes to both metallic and composite planes, Kleinfeld
Annual growth rates for the
overall automotive sector are estimated to be about 2 to 3
percent through 2015, although the North American aluminum
automotive sheet market alone is expected to grow at a whopping
annual growth rate of between 30 to 35 percent, he said.
Thats because the North American auto industry is
"aluminizing" in response to growing demand from consumers and
policymakers for lighter, more fuel-efficient vehicles,
But while the outlook for
downstream markets is good, Alcoas upstream business is
"tremendously" under pressure from low metal prices, Kleinfeld
"Unfortunately, (cutting costs)
was more than necessary because (the impact of lower metal
prices) was very, very harsh last year," Kleinfeld said. The
average cash price for aluminum on the London Metal Exchange
fell 15.7 percent to $2,021 per tonne in 2012, translating into
an approximate $1-billion hit on profits, he said.
Last week, Alcoa said it was considering cutting as much as
460,000 tonnes of smelter capacity over the next 15 months due
to the low aluminum prices (
amm.com, May 1).